CAS Indexed Annuity Crediting Strategies and Interest Rate Concepts

Question 1

What is the primary benchmark index most commonly used in fixed indexed annuities?

Accepted Answer

S&P 500 Index

Answer

Dow Jones Industrial Average

Answer

NASDAQ Composite

Answer

Russell 2000

Question 2

In a fixed indexed annuity, what happens to the policy owner's principal if the linked index performs negatively during a crediting period?

Accepted Answer

The principal is protected and no interest is credited for that period

Answer

The account value decreases proportionally with the index

Answer

The account value is reduced by a contractual floor amount

Answer

The insurer charges a negative return fee against the account

Question 3

What is a 'participation rate' in a fixed indexed annuity?

Accepted Answer

The percentage of index gains credited to the policy owner

Answer

The percentage of premium allocated to the index strategy

Answer

The percentage of the surrender charge waived each year

Answer

The percentage of premium returned to beneficiaries upon death

Question 4

Which crediting method calculates interest based solely on the difference between the index value at the start and at the end of a contract term?

Accepted Answer

Annual point-to-point

Answer

Monthly averaging

Answer

Monthly sum

Answer

Daily averaging

Question 5

What is an interest rate 'cap' in a fixed indexed annuity?

Accepted Answer

The maximum interest rate that can be credited during any crediting period

Answer

The minimum interest rate guaranteed regardless of index performance

Answer

The floor rate applied when markets decline

Answer

The rate used to compute surrender charge reductions

Question 6

In a fixed indexed annuity, what does the 'floor' most commonly represent?

Accepted Answer

The minimum guaranteed interest rate, typically 0%, protecting against negative credits

Answer

The maximum possible credited interest rate for a given period

Answer

The participation rate applied to positive index returns

Answer

The minimum initial premium required to open the contract

Question 7

What is a 'spread' (also called a margin or asset fee) in the context of indexed annuity interest crediting?

Accepted Answer

An amount deducted from index gains before interest is credited to the policy

Answer

The difference between the stated and effective annual interest rates

Answer

The additional premium charged when optional riders are added

Answer

The difference between the account value and the surrender value